In case you missed the news during the New Year's holiday, theFederal Trade Commission subpoenaed nine carriers that control 60percent of the U.S. homeowners insurance market, as part of a probeinto how they use credit scores to set premium rates. I doubt theywill find any intentional discrimination going on, but will that beenough to keep Uncle Sam from restricting or even banning thepractice outright?

While the word “subpoena” has negative connotations of someone'sarm being twisted, in fact this investigative process has beenfairly civilized.

As reported by our Washington bureau chief, Dave Postal (clickhere for his complete story), the FTC in May asked for commenton a draft model order it could use in formulating its request fordata in a fashion that wouldnt burden insurers. How sweet ofthem!

However, that doesn't change the fact that by April 24,Allstate, American Family Mutual, Chubb, Fire Insurance Exchange,Liberty Mutual, Nationwide Mutual, State Farm, Travelers and theUnited Services Automobile Association are going to have to coughup a load of data that could come back to haunt them, depending onthe spin given of the FTC's analysis.

One major concern is the privacy protection, if any, to beafforded the client information handed in to Washington. But in thelong-term, that's the least important concern of insurers, whichhave come to depend on credit scoring as a reliable indicator ofunderwriting risk.

Consumer fears about how credit information may be misused ormisinterpreted cannot be rejected out of hand. And with so manymore people defaulting on home and credit card loans in thesetrying economic times, the pressure is likely to be even greater oninsurers to justify why someone who misses a loan payment is alsomore likely to file an insurance claim.

The bigger issue is an existential one: Even if the use ofcredit scoring can be statistically justified by actuaries andunderwriters, if there is a disparate impact on the poor andminorities, will Congress and a more consumer-friendly DemocraticWhite House allow it to stand?

We went through this debate in 2007, when both the FTC andFederal Reserve Board came out with legally-mandated studies ofcredit scores in auto underwriting, concluding that credit historyis an effective predictor of auto risk.

I am still not sure I understand the underlying reasoning, as Ipersonally know people of impeccable credit histories who are notthe best of drivers. But statistically, insurers have been able todemonstrate a correlation.

Since race and income is not recorded on auto policyapplications, theoretically at least, use of credit scores shouldbe a color- and status-blind rating factor.

When race was banned as a rating factor on life insurancepolicies, the questionable practice was direct and overt. But withrace not included on auto or homeowners applications, if thereturns out to be a disparate impact, is that beside the point?

What do you folks think?